1.3 Banking group – Liquidity risk

Qualitative information

A. General aspects, management procedures and measurement methods of the liquidity risk

The liquidity risk refers to the possibility that the Group fails to service its debt obligations due to the inability to raise funds or sell enough assets on the market to address the financial deficit. The liquidity risk also refers to the inability to secure new adequate financial resources, in terms of amount and cost, to meet its operating needs and opportunities, hence forcing the Group to either slow down or stop its operations, or incur excessive funding costs in order to service its obligations, significantly affecting its profitability.

Financial resources are represented by equity, on-line funding from retail customers, and funding operations carried out on the domestic and international interbank market as well as with the Eurosystem. Following the acquisition of the former GE Capital Interbanca Group, the Group's core business now includes Corporate lending, structured finance, and finance and operating leases—which are all medium-term operations. Factoring operations concern short- or very short-term trade receivables (normally not exceeding 6 months, excluding receivables due from the Public Administration, with average collection periods usually up to 12 months).

With reference to the Group’s operations concerning the NPL Area and the purchases of tax receivables arising from insolvency proceedings, the characteristics of the business model imply a high level of variability concerning both the amount collected and the date of actual collection. Therefore, the timely and careful management of cash flows is particularly important. To ensure expected cash flows are correctly assessed, also with a view to correctly pricing the transactions undertaken, the Group carefully monitors the trend in collections compared to expected flows.

The Banca IFIS Group has always secured financial resources more than adequate for its needs thanks to its wide and diverse interbank relationships, the market's positive response to its on-line funding source, the presence of a portfolio of bonds eligible for Repo transactions, and the type and quality of its assets.

During the period, the Bank pursued particularly prudent financial policies aimed at favouring funding stability. This policy, which affects the economic efficiency of treasury management, in terms of the rate spread between interbank funding and lending, to guarantee certain and stable liquidity, is adequately supported by the profitability of the Group's operations.

At the moment, the available financial resources are adequate for current and future business volumes. Nonetheless, the Group is constantly striving to improve the state of its financial resources, in terms of both size and cost.

The Parent Company’s business functions responsible for ensuring that liquidity policies are properly implemented are: the Treasury Department, which directly manages liquidity; the Risk Management function, responsible for selecting the most appropriate risk indicators and monitoring them with reference to pre-set limits; and the Top Management, which every year, aided by the Financial Office, shall make proposals to the Bank's Board of Directors regarding policies on funding and the management of liquidity risk, as well as suggest appropriate actions during the year in order to ensure that operations are conducted consistently with the risk policies approved by the Group.

As for its own direct operations, the Bank has adopted a model for analysing and monitoring present and future liquidity positions as an additional element systematically supporting the Top Management’s and the Board of Directors’ decisions concerning liquidity. The results of periodic analyses carried out under both normal and stress market conditions are reported directly to the Supervisory Body.

In order to ensure Group-level monitoring and reporting, Banca IFIS has implemented an integration process to include Interbanca, IFIS Factoring, IFIS Leasing, and IFIS Rental Services in the scope of analysis—even though IFIS Rental Services is not included in the supervisory scope.

In compliance with supervisory provisions, the Bank also has a Contingency Funding Plan aimed at protecting the banking Group from losses or threats arising from a potential liquidity crisis and guaranteeing business continuity even in the midst of a serious emergency arising from its own internal organisation and/or the market situation.

Furthermore, the Risk Management function periodically reports to the Bank’s Board of Directors on the liquidity risk position by means of a Dashboard prepared for the Bank’s management.

With reference to the Polish subsidiary, treasury operations are co-ordinated by Banca IFIS’s Treasury Department, in accordance with the Group’s policies. If needed, the Bank may intervene directly in the subsidiary’s favour.

As part of the continuous process of updating internal procedures, and taking into account the changes in the relevant prudential regulations, the Bank has implemented a Group liquidity risk governance and management system.

Quantitative information

1. Distribution by residual contractual duration of financial assets and liabilities - Currency: Euro

Items/Duration on demandover 1 day to 7 daysover 7 days to 15 daysover 15 days to 1 monthover 1 month to 3 monthsover 3 to 6 monthsover 6 months to 1 yearover 1 to 5 yearsOver 5 yearsindefinite life
On-balance-sheet assets 869,555114,012103,900397,521122,745512,131792,6041,383,75949,5681,069,831
A,1 Government bonds-----427270,71980,000--
A,2 Other debt securities------6--0
A,3 UCITS units3,939---------
A,4 Loans865,616114,012103,900397,521122,745511,704521,8791,303,75949,5681,069,831
- banks168,88618,0262,505952705,80922,76254711,2641,2771,063,831
- customers696,73095,986101,395396,569828,554488,942521,3321,292,49550,8456,000
On-balance-sheet liabilities 992,50549,46762,088365,5351,862,906259,947420,4451,758,1785,591-
B,1 Deposits and current accounts990,07648,93062,088365,5231,541,669259,288420,3071,539,2452,112-
- banks49,733972,856261,08988,55136,1959,082---
- customers940,34348,83359,232104,4341,453,118223,093411,2251,539,2452,112-
B,2 Debt securities3954--136765247,941--
B,3 Other liabilities2,034533-12321,2245927329,0083,479-
Off-balance-sheet transactions 117,044--121,691193,31769,14115,60231,63717,572-
C,1 Financial derivatives with exchange of underlying assets---65,952189,94060,000-0--
- long positions---32,97694,97030,000-0--
- short positions---32,97694,97030,000----
C,2 Financial derivatives without exchange of underlying assets86,332---------
- long positions39,885---------
- short positions46,447---------
C, 3 Deposits and loans to be received----------
- long positions----------
- short positions----------
C, 4 Irrevocable loan commitments30,712--55,7393,3779,14115,60231,63717,572-
- long positions7,501---3,3779,14115,60231,63717,572-
- short positions23,211--55,739------
C,5 financial guarantees granted----------
C,6 financial guarantees granted----------
C,1 Credit derivatives with exchange of underlying assets----------
- long positions----------
- short positions----------
C,8 Credit derivatives without exchange of underlying assets----------
- long positions----------
- short positions----------

Self-securitisation transactions

On 25 January 2011, Toscana Finanza’s Board of Directors resolved to implement a securitisation programme for non-performing loans pursuant to Italian Law 130 of 30 April 1999 in order to optimise the operational and economic management of part of its financial receivables portfolio.

The operation concerned non-performing banking loans identifiable in block and largely backed by mortgages for an overall par value of around 33,7 million Euro.

The special purpose vehicle, Giglio SPV Srl, issued floating-rate asset-backed securities that were wholly underwritten by the merged company Toscana Finanza S.p.A., which was given a specific sub-servicing mandate for the collection and management of the receivables.

It should be noted that, pursuant to the terms and conditions of the operation, there is no substantial transfer of all the risks and rewards relating to the transferred assets (receivables).


Securitisation transactions

As for the securitisations conducted in late 2016 and their purpose, see the comments in the section on credit risks.


Exposure to high risk instruments – disclosure

Considering the goals it pursues and the technical aspects of the securitisation described above, the Banca IFIS Group faces no exposure or risks arising from the trading or holding of structured credit products, whether carried out directly or through unconsolidated special purpose vehicles or entities. In particular, it is important to stress that the securitisation has not removed any risk from the Group’s total assets, since the derecognition requirements set by IAS 39 were not met. Meanwhile, the underwriting of the securities arising from the securitisation has not added any risk nor changed the presentation of the assets involved in the securitisation in the financial statements compared to the past. With reference to the Recommendation set out in the Report of the Financial Stability Forum of 7 April 2008, Appendix B, we can state that there are no exposures to instruments deemed highly risky by the market or implying a risk greater than previously expected.